Series 65 Unit 1 - Kaplin

10,000 , 5years/ 5,000 , 3 years

If the voilation is one which the SEC seeks criminal penalties the act provides for a fine of no more than $_ and imprisonment for no more than _ or both. Under the USA the max penalites for criminal infraction are a fine of up to $_ and a prison sentence not to exceed _ or both

SEC Release IA-1092

interprets the definition of investment adviser under the IAA act of 1940 to include financial planners, pension consultants, and others who offer investment advice as part of their financial practices.

market maker

is a dealer who holds himself out as being willing to buy and sell a particular securitiy for his own account and on a regular or continuous basis.

open end company

is a management company that is continuously offering for sale, or has outstnading, any redeemable security of which it is the issuer. synonymous with mutual fund. The redemption price is the net asset vlue calucluated every business day as of the close of the market.

unit investment trust

an investment compnayn that does not have a board of directors and issues only redeemable securities, each of which represents an undivided interest in a unit of specified securities. ex. muni bond trust

nonaffiliate

an investor who is not a control person and has no other affiliation with the issuer other than as an owner of securities

registration statement

an issuer must file this with the SEC disclosing material information about the issue. The registration statement must be signed by the principal executive officer (CEOO), financial office (CFO) and a majority of the board of directors.

Activity, amount, asset

an order is discretionary is any one of the 3 A's is missing. They are -

foreign private investor under Dodd-Frank

any investment adviser that has no place of busines in the US, has in total, fewer than 15 clients and investors in teh US in private funds advised by the adviser, has aggregate assets under management attributable to clients in the US and investors in the US in private funds advised by the adviser of less than $25milliuon and does not hold itself out to the public in the US as an investment adviser or act as an investment adviser to an investment company regisrterd under Inv comnp act of 1940

management company

any investment company other than a face amount certificate company or a UIT. Managed by adviers with a fee generally based on the amount of AUM

broker

any person engaged in the business of effecting transactions in securities for the account of others. not banks

Dealer

any person regularly engaged in the business of buying and selling securities as principal for his own account, but doesnt include a bank, insurance copnay, or investment company

dealer

any person regulary engaged in the business of buying and selling securities for his own account.

transfer agent

any person who engages on behalf of an ssuer of securities in countersigingn the certifcates, registering the transfer of the issuer's securities, exchanging or converting the issuers securities, and transferring record ownership of securities by bookkeping entry without phyiscal issuance of securities certificates

Rule 147 issue

any security offered and sold only to persons resident within a single state or territory, where hte issuer of a such secutiyy is a person resident and doing business within such state or territory

National securities markets improvement act of 1996

made changes in the way investment advisers register. it divided registration responsibilities between the SEC and the states securities departments. Basically, the largest firms are required to register with the SEC and the smaller ones unless qualifying for an exemption, ar erequired to register with the states.

JOBS Act

made several important changes to rule 506 of regulation D

red flag

means a pattern, practice, or specific activity that indicates the possible existence of identity theft

Supervised Person

means any partner, officer, director or employees of an envestment adviser on behalf of the investment adviser and is subject to the supervision and control of the ivnestment adviser. includes all employees even those who perfrom clerical functions and are not required to become registered.

Person assosciated with an investment advisor

means any partner, officer, or director of the investment advisor or directly or indirectly controllign or controlled by the investment adivor including any employees of the investment advisor

exclusion

means exclusion from a definition

impersonal investment advice

means investment advisory services provided by means of written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts.

exemption

means not subject to registration

treble damages

means that the guilty party could be fined up to 3 times any ill-gotten gains or up to 3 times any losses avoided by using inside information to get out before a market drop. reserved for SEC actions

control

means the power, directly, or indirectly, to direct the management or policies of an investment adviser, whether through ownership of securities, by contract, or otherwise. under the IAA of 1940 as well as NASAAS Model Rule, each of the firms officers, partners, or directors exercising executive responsibilitiy is presumed to be this. Defined in 3 different ways -Exchange Act requires 10%, Investment co act requires more than 25% and the advisers act requires 25% or more

fulcrum fee

most common type of performance fee. The fee is averaged over a specified period ( at least 12 months) with an increase or decrease in proportion to the ivnestment performance in relation to the performance of a specified securities index.SUusally the S&P 500.

$100,000

no registered investment company is permitted to make a public offering of secufities unless it has a net worth of at least _

Section 13(f) filings

of SEA 1934 requires that any institutional investment manager that uses the mail or any means or instrumntality of interstate commerce in the course of its business as a institiutnoal invesmtnet manager, and that exercises investment discretiion over an equity portfolio with a market value on the last trading day in any of the preceding 12 months of $100 million or more must file this form with the SEC quarterling within 45 days of the end of each quarter

new issue

one specific type of securitiy on which credit may not be extended is a _. The underwritin syndicate must receive full payment for any of these within 35 days of the purchase

Principal office and place of business

the executive office of the investment adviser from which the officers, partners, or managers of the investment adviser direct, control, and cooridnate activities o the investment adviser

FINRA

the largest SRO. the organization to which virtually all broker-dealers belong

REgulation D

the private placement exempt transaction put in place to facilitate the capital formation needs of small businesses. Securities offered and sold in complaince with this are exempt from registration wit hthe SEC and are considered federal covered secutiites and are exempt from registration on the state level as well

breakpoint

the quantitiy level stated in the prospectus at which investors receive a reduction in load. available to any person who purchases in the stated quantity.

Tuesday, Wednesday

A state registered IA discovers Monday that its net worth is below the minimum requirement. No later than close of business day on _, notice must be sent to the administrator of the state in which the investment adviser has its prinipal office. Then, no later than close of business on _, the IA must file adetailed report with the administrator of its financial condition. Included in the report must be a statement as to the number of client accounts

Intrastate Advisers

Advisers whose clients are residents of the state in which the adviser has its principal oiffice and place of business and who do not give advice dealing with securities listed on any national exchange are exempt

15 Dys

Under Rule 503 of Regulation D, an issuer that is issuing securities in reliance on Regulation D must file ' Form D' with the SEC no later than _ days after the first sale (definied as the time when an investor has delivered an irrevocable coommitment to invest) of secutiies in the offering. It requires certain basic info about the issuer and the offering including total size of the offering, amount sold to date, use of proceeds, and names of any persons paid commissions

oral or writing, writing; 120

Under federal law, contracts may be made in _ or _, under state law they must be in _. A brochure must be given to any new client at the time the agreement is entered into and then on a yearly basis within _ days of the end of the fiscal year

National Securities Markets Improvement Act of 1993 (NSMIA)

Under this act investment advisors who are registered wit the SEC under the Investment advisers act of 1940 *federal covered advisors) do not register with the state securities administrators

90, 180

an investment adviser registered under the state law whose assets reach $110 million AUM has _ days to register with the SEC. A federal covered IA whose AUM falls under $90 million no longer qualifies for SEC registration and has _ days to register with the states

face amount certificate company

an investment company that issues face-amount certificates on the installment plan. A security that represents an obligation on the part of its issuer to pay a stated sum at a fixed date more than 24 months after the date of issuance, in consideration of the payment of periodic installments of a statde amount.

exempted

all federal goverment issues and municipal securities are _ Securities

Private fund adviser exemption

an exeption for advisers solely to proivate funds with less than $150million in assets under management in the US without regard to the number or type of private funds

foreign private adviser exemption

an exeption for certain non-UXS advisers with no place of business in the US and minimal assets under management (less than $25m) attributable to US clients and investors

venture capital fund exemption

an exerpmtion for advisers solely to venture capital funds

Regulation T

federal reserve issued this regulation to establish regulations governing the use of credit for hte purchase or carrying of securities

Form U-5

filed in the case of termination. In the case of IAR termination - if it is federally covered, the IAR must notify the administrator, if it is state covered, the firm must notify the administrator. Both IARs and agents file this for terminations

Form ADV-E

filing of this is required only when the investment adviser, rather than a qualified custodian, maintains custody of customer funds/securities.

Form ADV-W ....60, 30

if an adviser no longer desieres to engage in the business, application to withdraw registration is accomplished by filing _ Must be filed in order to withdraw registration voluntarily. Becomes effective _ days after filing with the SEC and _ days in the case of state registered advisers

substantial prepayment of fees

in the case of federal covered advisers, it is considered _ if the IA collects prepayments of more than $1,200 per client, six months or more in advance. ***Under the USA it is more than $500 and again, six months or more in advance

Small investment advisers

includes advisers with AUM of less than $25million,. Unless the adviser is an adviser to an investment company registered under the investment company act of 1940, registration with the SEC is prohibited and unless exempted under state rules, registration with the state is required. In addition, if the adviser would be required to register in 15 or more states, registration withthe SEC would be permitted instead.

1, 3

statute of limitations for bringing action is the earlier of _ year after discovery of the violation or _ years after the date of the action

public offering price and effective date

the 2 things missing from the preliminary prospectus (red herring) are _ & _

notice filing

the administrator can require a federal covered adviser to file a copy of whatever has been filed with the SEC and of course pay a filing fee. If a federal covered adviser only deals with institutions, other IAs, other BDs and so forth, this is not required. (Part 1A of the ADV if SEC registered, part 1a and 1b if state registered)

agency cross transaction

the adviser acts as agent for both its advisory clients and the party on the other side of the trade.Need a written consent in advance (blanket authority). May not recommend the trade to both parties of the trade

securities act of 1933

the discolsure requirements for new issues (IPS) is found in the _

SEC Rule 15c 3-1

(uniform net capital rule) which establishes minmum net capital requirements for broker-dealters. In other words, a broker-dealter must at all times maintain a minimum amount of net capital for the protection of its customers. If it doesn't have the required net capital under hte rule, the SEC does not allow it to operate. Also requires broker-dealers to maintain a fidelity bond to protect against misappropriation, forgery and similar violations of the firm and its associated persons.

investment counsel*

2 criteria in the Inv Act of 1940 that must be met in order to use this term: The IAs principal business must be giving investment advice - which excludes financial planners and others for whom investment advice is only a part of what they do. & Provide investment supervisory services (if you have discretionary authority over and provide ongoing supervisory or management services or you do not have discretionary over hte account but have ongoing responsibilities to select or make recs. & Compensated based on the avg value of the clients assets you manage over a specfici period of time.

market price, clients name or address

2 things that would not be on an order ticket are _ & _

schedule D

5% beneficial owners generally requires a beneficial owner of more than 5% of a class of equity securities registered under the Securities excahnge act of 1934 to file a report with the issuer, SEC, and the seucrities markets where those securities trade within 10 days of any transaction that results in beneficial ownership of more than 5%. the reporting is fulfilled by filing this

Compensation

A person who receives any economic benefit as a result of providing investment advice is an investment adviser. Includes advisory fees, commissions, or other types of fees relating to the service redered. Can be payed by a third party but always must be disclosed to the client. Fees receied from a corporation for advice given to the corporations emlpyees or retirees are considred compensation

SEC Rule 506

A private placement where there is no dollar limit on the amount sold

hedge clauses

A provision included in published financial reports that indemnifies the author, or authors, against any responsibility for any errors, omissions, or oversights contained within the report. May not be used to disclaim statements that are inherently misleading

$20 million buffer

An investment adviser must register with the SEC once it hits this top amount and must withdraw from the SEC under this amount - the buffer. Annually

exempt in section 402 of USA

An isolated sale of a corporate bond on behalf of the bond's issuer is not exempt.

INvestment adviser representative

Any Individual who Makes any recs or otherwise renders advice regarding securities; manages accounts or portfolios of clients; determines which recs or advice rgarding securities should be given; solicits, offers, or negotiates for the sale of or sells invesmtnet advisory services; supervises employees who perform an of the foregoing. Can only be an individual or natural person

Regulatory assets under management RAUM

In determining this amount the IA must include the securties portfolios for which it provides continueous and regular supervisory or management services.

Investment advisor act of 1940

Is the federal legislation that defines the term investment advisor and requires persons that fall within the definition to register with the SEC or with the states in which they do business. 2 primary purposes: regulation of persons both natural and legal in the business of giving investment advice -the establishment of standars of ethical business conduct for the industry

Mid Size Advisers

It includes those with AUM of at least $25million but not $100 million. There are more extensive exceptions than exist with small adviers. It is not prohibited from registering with the SEC if the adviser is not required to be registered as an IA with the securities administrator of the state in which it maintains its principal office and place of business. If the adviser would not be subject to examination as an investment adviser by that securities adminsitrator, if the adviser is required to register in 15 or more states or if the adviser elects to take advantage of the buffer

unlimted, 35

Rule 506b, a company seeking to raise capital through a private palcement can sell th offering to an _ number of accredited investors and up to _ non-accredited investors. no advertising. Rule 506C allows advertising - all purchases are accredited investors or the issuer reasonably believes they are and takes reasonable steps to verify they are

10k, 35k,, positive

Typically, the net worth required of IAs with discretionary authority is _ and that for those taking custody is _. An adivser who doesn't have discretion or custody but does accept prepayment of fees of more than $500 six or more months in advance must always maintain a _ net worth

Wyoming

The only state as of now to not call for registration of IAs.

Broker

This means any persons engaged in the buesiness of effecting transactions in securties for the account of others

control person

a corporate director, officer, great than 10% voting stockolder, or the spouse of any of the preceding is a _

Schedule 13G

a passive investor whose beneficial onwership exceeds 5% of any registered security may file this. It was adopted to ease the beneficial ownership requirements for passive investors. A passive investor is any person who can certify that they did not purchase or do nothold the securities for the purpose of changing or influecning control over the issuer and hold no more than 20% of the issuer's securities. must file within 10 calendar days after crossing the 5% threshold just as with a schedule 13D. Passive investors must amend this within 45 days after the end of the calendar year to report any changes in the info previously reported

Fiduciary

a person legally appointed and authorized to hold assets in trust for another person. They managed the assets for the benefit of the other person rahter than for his or her own profits must exercise a standard of care imposed by law. exampls are an executor of an estate a trustee and an investment advisor

Venture capital fund

a private fund that has limited leverage, does not except in certain limited circumstances, offer its investors redemption rights or other similar liquidity rights; represents itself as a venture capital fund to investors; and is not registered under the inv comp act of 1940

wrap fee program

a program under which a client is charged a specified fee or fees not based directly on transactions in a clients account, for investment advisory services

unsolicited

a securities order that is initiated by a client is what type of order

matched orders

are illegal under hte act. it is the entering of a sell or buy order knowing that a corresponding buy or sell order of substantially the same size, at substanially the same time and at substantially the same price, either has been or will be entered. No real change in ownership takes place

wash trades

are prohibited under the act. It is a securities transaction that involves no change in the beneficail ownership of the security. for example, an investor might simultaneously buy and sell shares in one company through two different brokerage firms in order to create the appearance of substantial trading activity, and that is misleading to other investors.

blue sky laws

are state securities laws.

45, 30

assuming no irregularities in the application, registration with the SEC takes effect on the _ day after filing a complete app and, as with all securities professionals, at noon of the _ day in the case of state registered IAsa

Form BD, 45

broker-dealers file application for membership on form _ and the SEC has _ days to accept or deny the registriation

churning

can be described as a broker-dealer effecting transactions in a discretionary account that are excessive in size or frequency, in view of the financial resources, objectives, and character of the account

SEC

consists of 5 people, with one serving as chair, appointed by the persident with the advice and consent of hte SEnate. Admistrates all fedearl laws regulating the securities industry except those regulating the extenstion of credit. Commissioners have 5 year terms and may have no other business or employment other than that job. Staggered terms so someone is new each yearmay not engage in any personal securities transactions other than in US gov issues.All securities they have are placed in a blind trust. NO more than 3 may belong to the same political party

pension consultants

consultants who advise employee benefit plans on how to fund their plans with securities are also considered investment advisers by the SEC.

Securities exchange act

created the SEC. The act grants the SEC authority over all aspects of the securities industry, including the power to register, regulate, and oversee brokerage firms, transfer agents, and clearning agencies as well as the nation's seucriites self-regulatory organizations (SROs)

dodd frank act of 2010

declared that the net worth had to exclude the net equity in the primary residence

Rule 203(b)(3)1

deemed a single client if a natural person, any minor child of the natural person, any relative, spouse or relative of the souse of the natureal person who has the same principal residence. All accounts of which the natural person and or the persons referred to are the only primary beneficiaries and all trusts of which the natural person or persons referreded to are the only primary beneficiaries.

regualtion T

delegates the board of governors of the federal reserve system to set margin requirements which determine how much credit may be extended by broker-dealers to their customers to purchase certain securities. prevents excessive use of credit. they are around 50% now.

Investment advisor registration depository IARD

is an electronic filing system that facilitates investment adviser registration, regluatory review and the public disclosure information of investment adviser firms. FINRA is the developer and operator of the system. 6

exchange

is an organizatin, association, or group of persons providing a marketplace or faclilites for bringing together purchasers and sellers of securities. inclues the marketplace and the facilities. must be registered. It is accomplished by filing an appliction with the SEC, which will be accepted ordenied with 90 days of application

asset based sales load

is any direct or indirect financing by a mutual fund of sales or promotional services or activities in connection with the distribution of shares.

prospectus

is any notice, curcular, letter, communication, writte on broadcast by radio or television that offers any securityu for sale or confirms the sale of a security.

Access person

is any of the adviser's supervised persons who 1. has access to nonpublic info regarding any clients purchase or sale of securutiies or non public info regarding the portfolio holdings of any reportable fund. or 2. is involved in making securities recs to clients or who has access to such recs that are nonpublic.

affiliated person

is defined as any person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding shares of the ivnestment company. includes any person directly or indirectly controlling, controlled by or under common control wit hte investment company or any officer, director partner or employee of the investment company. a person is deemed a control person when owning or controlling more than 25% of the outstanding shares

investment adviser

is defined as any person who, for compensation, engages in the business of advising others as to the value of securities or the advisability of investing in securities or, as part of a regular business, issues analyses or reports converning scurities

3(c)1 issuer

is one whose outstanding securities are beneficially owned by not more than 100 and which is not making and does not presently propose to make a public offering of its securities.

3(c)7 issuer

is one whose outstanding securities are owned exclusively by persons who, at the time of acquisition of such securities are qualified pruchasers. at least $5mil in investments for individuals and $25m in investments for business entitities and which is not making and does not at the time propose to mkae a public offering of such securities,.

chinese wall

is the term used to describe the procedures followed by these firms to insulate information from reaching the wrong hands(also called information barrier)

buy and hold clients

it is generally agreed that these clients are not suitable for a wrap fee account because they do not do enouhg trading to benefit from the fact that commissions are included in the program fee

Financial Planners

persons who make recs regarding a person's financial resources or perform analyses that concern securities are investmnet advisers if such cservices are performed as part of a business and for compensation. SEC holds that there is no such thing as a comprehensive financial plan that does not involve securites

Sports and entertaintment reps

persons who provide financially related servces to entertainers and athletes that include advice related to investments, tax planning, budgeting and money management are also investment advisors. *A sports agen who secures a favorable contract for a football player and receives a commission of 10% of the player's salary is not necessarily an investment adviser. However - once they advise the player to invest his money in specific securities the agent is then in the business of offering investment advice and would then be subject to the investment advisor act of 1940 or uniform securities act

directed brokerage

practice of asking or permitting clients to send trades to a specific broker-dealer for execution when the IA suggests the client use a specific broker dealer, disclosure of any possible confilcts of interest must be made

5, 3

record retention requirements for investment advisers is _ years and for broker dealers it is _ years

net capital

refers to net liquid assets of a firm

securities act of 1933

regulates the issing of corporate securities sold to the public and through sebsequent public offerings. requires securities issuers to make full disclosure of all material information in their registration materials in order for investors to make fully informed ivnestment decisions. prohibits fraudueltn activity in connection with teh sale, underwriting and distribution of securiteis. provides for both civil and criminal penalites for vialoations of its provisions

Securities amendments act of 1975

represents the most important changes in the regulation of securities since the SEA act of 1934. main purpose was to remove any barriers to competition in the securities industry. SEC was given much greater power to regulate the securities industry. (fixed commision rates were abolished in favor of negotiationed commissions on public orders, required registration of municipal securities dealers with te SEC, given power to regulate the activities of transfer agents

Secttion 16

requires executive officers, directors and greater than 10% stockholders to file transaction reports before the end of the second business day following the day on which a transaction has been executed in an equity security where they are considered an insider

securities exchange act of 1934

requires many different group and organizations to register with the SEC. the act regulates securities transactions by insiders who generally own large amounts of their companies' stock.

closed end company

these companies generally have a onetime offering of shares and do not redeem their outstanding shares. pricing is not based on NAV, but on supply and demand. Therefore, shares may be purchased or sold in the marketplace at a price above, below or at the NAV. When selling at a price about the NAV, it is said to be selling at a premium, below is at a discount

Rule 482

this SEC rule permits investment companies to use what is known as an omitting prospectus.

Insider trading and securities fraud enforcement act of 1988

this act gave hte SEC authority to seek civil penalites against persons violating the provisions of the act in the amounts up to the greater of $1million or treble damages. Should the SEC elect to pursue criminal action then penalites would include potential jail time with a max sentence of 20 years

SEC Rule 501

this rule classifies an accredited investor for the purposes of Regulation D into separate categories. Investors are considered to be accredited under the rule only if the issuer or any person acting on the issuer's behalf has reasonable grounds to believe, and does believe after reasonable inquiry that hte investors are included in one of the categories in the definiion.

Rule 12b-1

this rule permits a mutual fund to act as a distributor of its own shares without the use of an underwriter and with an asset-based sales load. basically allows no-load funds to pay commissions to broker-dealers who sell or otherwse promote the sale of their fund shares. Can't use the term no-load if its rule fee exceeds .25% (25 basis points)

SEC RUle 144

this rule was created so that certain resales of already existing securities could be made without having to file a complete reistration statement with the SEC. In almost all cases those wishing to sell control stock or restricted stock must do so through this filing

Large Investment advisers

those advisers with at least 100 million or more in AUM are eligible for SEC registration; once AUM reaches $100million registration with SEC is mandatory. Unless covered by one of the exceptions

federal covered investment advisers

those required to be reigstered or registered as an investment adviser with the SEC because they meet the minimum threshold of assets under management ($110million); those under contract to manage an investment company registered under the inv comp act of 1940 regardless of the amount of AUM,; or those not registered with the SEC because they are excluded from the definition of an investment adviser by the Inv Adv Act of 1940

90

timeline to file an annual updating amendment of the ADV after the adviser's fiscal year

Successor firm

under both federal and state law a _firm registers by filing a new application and, in the case of the SEC, paying the appropriate fee and under the USA without additional fee. (Note one has a fee one doesnt)

Investment company act of 1940

under this act an investment company is defined as any issuer that is or holds itself out as being engaged primarily in the business of investing in securities. this DOES NOT include broker dealers/underwritiesr, banks and savings and loans, insurance companies, holding companies, issuers whose securities are beneficially owned by no more than 100 persons, and issuers who trade in investments other than securities. 3 types of companies

Rule 2016(4)-7

under this rule it is unlawful for an investment adviser registered with the commission to provide investment advice unless the adviser has adopted and implementedwritten policies and proceudres reasonably designed to prevent violation of the advisers act by the adviser or any of its supervised persons. Requires advisers to consider their fiduciary and reulatory obligations under hte advisers act and to formalize policies and procudures to address them.

Dodd-Frank assets under management threshold

under this, investment advisers must determine the amount of private fund assets on a quarterly basis, based upon the fair value of such assets. Investment advisers will have one calendar quarter after exceeding $150million threshold to register with the SEC